A share price is currently $15. At the end of three months, it will be either $13
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A share price is currently $15. At the end of three months, it will be either $13 or $17. Ignoring interest rates, calculate the value of a three-month European option with payoff max(S2 − 159, 0), where S is the share price at the end of three months. You must use both the methods of setting up the delta-hedged portfolio, and the risk-neutral probability method.
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Method 1 Setting up a DeltaHedged Portfolio The value of the option is equal to the value of the por...View the full answer
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